Current 20-year mortgage rates — and how to secure a competitive APR
Updated 4:41 PM EDT, Wed September 18, 2024
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When you take out a new mortgage, the shorter your loan term, the lower your mortgage rate will typically be. Whether you’re buying a home or refinancing, two popular choices are 15- and 30-year mortgages — but another option to consider is a 20-year mortgage. This option can help you pay off your mortgage early while giving you a potentially lower interest rate, offering a middle ground between a 15- and 30-year term.
Current 20-year mortgage rates
Current 20-year mortgage rates are trending down, thanks to promising economic news and the Federal Reserve cutting its benchmark rate by half of a percentage point (or 50 basis points) on Sept. 18. (Home loan APRs typically follow the federal funds rate’s trajectory.)
Typically, longer-term mortgages have higher rates because of the increased risk to the lender. So, 20-year mortgage rates are usually lower than 30-year mortgage rates, but higher than 15-year mortgage rates.
How 20-year mortgage rates are trending
Mortgage rates jumped to their highest level since the early 2000s in 2023 and remained elevated, hovering near the 7% mark — but the tide may finally be turning in borrowers’ favor. Current mortgage rates for 30-year loans are stabilizing, hitting 6.2% in mid-September 2024, according to Freddie Mac. Since they follow the same trendline, 20-year mortgage rates were also slightly lower.
With Fed chairman Jerome Powell officially announcing the federal funds rate cut on Sept. 18, the mortgage market has been quick to react with lower rates, including 20-year mortgage rates, said Carrie Gusmus, president and CEO of Aslan Home Lending in Denver.
“We're already seeing the market, as it normally does, start to have a reaction to what the Fed will do,” Gusmus said in August, before the announcement. “The speculation is that between now and the end of the year, we'll see the Fed reduce rates by 100 basis points. And then, in 2025, we'll likely see another 100 basis points in reduction.”
But not all mortgage experts are as optimistic. In its August 2024 forecast, the Mortgage Bankers Association predicted that rates would hover between 6% and 6.5% at the end of the year.
8 tips for scoring competitive 20-year mortgage rates
- Check your credit. In general, the higher your credit scores, the lower the mortgage rates you’ll be offered. So before applying for a mortgage, work on increasing your credit scores by paying bills on time, reducing outstanding debt and disputing errors on your credit reports.
- Strengthen your loan application. Beyond credit, your income and debt play a key role in your mortgage rate. The higher and more stable your paycheck is, the better you’ll look in the eyes of lenders. While it’s not possible to increase your income overnight, you could swing your debt-to-income ratio in the right direction by paying down existing debt. Adding a cosigner or co-borrower to your mortgage application helps, too.
- Research lenders. Visit lender websites, use online comparison tools and consult with a mortgage broker who can provide access to some of the best mortgage lenders. Local banks and credit unions often offer competitive mortgage rates, so be sure to check with them in addition to national financial institutions.
- Get preapproved. Before starting your search for a home, you may want to get preapproved for a mortgage with a lender that stood out during your initial research (don’t worry, you can change lenders after getting an accepted offer on a house). This will give you a better idea of how much you can afford to borrow and make you a more attractive buyer to sellers.
- Consider paying points. You can buy down your interest rate by paying points upfront, which can result in “significant” lifetime interest savings, Gusmus said. Typically, one mortgage point costs one percent of the loan amount and reduces the rate by 0.25 percentage points. But, according to Gusmus, some lenders offer rate reductions worth 0.5 percentage points or more or more per point purchased.
- Compare offers. Once you’ve received a few offers for a 20-year mortgage, review the interest rates, points and fees associated with the loan. Sometimes, a slightly higher interest rate with lower fees can be more cost-effective in the long run. Comparing APRs, which account for the simple rate and certain fees, will give you a more complete view of each loan’s true cost.
- Negotiate. Don't be afraid to push lenders for a lower mortgage rate or discounted fees. Having multiple offers from different lenders gives you leverage in negotiations. “Ask the major banks to compete against their competitors,” said California-based real estate executive Joe Salerno, “and you might be surprised with the results.”
- Lock in your rate. Once you find a competitive 20-year mortgage rate, consider locking it in to protect against potential rate increases while you complete the homebuying process. Be sure to understand the terms and duration of the rate lock agreement.
Understanding 20-year mortgage rates
Twenty-year mortgage rates are typically 0.25 to 0.50 percentage points lower than 30-year rates, said Darren Tooley, a loan officer at Cornerstone Financial Services in Michigan. The shorter term also significantly reduces the interest you pay over the life of the loan.
“The combination of the discounted rate and shorter amortization will help you build equity in your home faster, and can save you between 40% to 60% in interest overall,” said Tooley.
That said, a shorter repayment term of 20 years means you’ll have a higher monthly payment (especially when compared to a rarer 40-year mortgage).
“Unlike having a 30-year loan and choosing to pay a little extra to pay the loan off faster, with a 20-year loan, you are obligated to make that minimum payment every month,” added Tooley.
Here’s an example of how your repayment can vary monthly and overall for a $300,000 loan:
| 20-year term | 30-year term | |
|---|---|---|
| Interest rate | 6.25% | 6.50% |
| Monthly payment | $2,193 | $1,896 |
| Overall interest | $226,268 | $382,633 |
Pros and cons of 20-year mortgage rates
| Pros | Cons |
|---|---|
|
|
Homeowners: Should you refinance to a 20-year term?
With rates expected to decline later in 2024 and into 2025 and homeowners sitting on a record-high $11.5 trillion in tappable home equity, according to ICE Mortgage Technology, there are refinance savings to be had in the next few months, Gusmus said.
“The sweet spot is, what is the interest savings that you have available now, versus the extra interest you’ll pay waiting just a few more months and potentially refinancing in December instead of September? We're not talking about a long wait,” said Gusmus.
On the other hand, you’ll have to account for the cost of refinancing, and you could end up with higher monthly payments, which requires pressure-testing your budget.
Related >> The best mortgage refinance lenders of 2024
Example: Say you originally borrowed $200,000 using a 30-year fixed-rate mortgage with a 7% interest rate. You’re four years into paying it off (with a balance of $190,949 remaining), and decide to refinance to a 20-year fixed-rate home loan with a 6% rate. There are $6,000 in closing costs, which you roll into the principal. Here’s how your monthly payments and total interest paid would compare:
| Original loan | Refinance loan | |
|---|---|---|
| Interest rate | 7% | 6% |
| Remaining term | 26 years | 20 years |
| Monthly payment | $1,331 | $1,368 |
| Overall interest cost | $222,992 | $137,375 |
| Overall loan cost | $413,941 | $328,324 |
As you can see, your payments would increase by $37 per month, but you’d save $85,617 in interest and pay off your loan six years sooner. A free online mortgage refinancing calculator can help you figure out your potential refinancing savings (or costs).
Related >> How soon can you refinance your mortgage?
Additional reporting by Deborah Kearns
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Frequently asked questions (FAQs)
Factors that affect mortgage rates include the Fed’s monetary policy decisions, inflation, the bond market and the overall health of the economy, as well as personal factors, including your credit scores, down payment amount (or equity, in the case of refinancing), location and more.
It helps to have good credit, sufficient income, a stable job history, a low debt-to-income (DTI) ratio and a sizable down payment (or equity, in the case of refinancing).
If you can afford a higher monthly mortgage payment and want to build equity in your home faster, you may opt for a 20-year mortgage rate over a 30-year term. A 20-year rate might also be a good compromise between the extremes of 15-year and 30-year terms.
A 20-year mortgage usually has a slightly lower interest rate than a 30-year mortgage. A lower rate combined with a shorter repayment timeline means you can save a significant amount in interest charges.
Editorial Disclaimer: Opinions expressed here are the author's alone, not those of any bank, credit card issuer, airlines, hotel chain, or other commercial entity and have not been reviewed, approved or otherwise endorsed by any of such entities.
This content is for educational purposes only and is not intended and should not be understood to constitute financial, investment, insurance or legal advice. All individuals are encouraged to seek advice from a qualified financial professional before making any financial, insurance or investment decisions.
Note: While the offers mentioned above are accurate at the time of publication, they're subject to change at any time and may have changed or may no longer be available.
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